What Is An End User License Agreement?

If the closing of Borders bookstore chain proved anything, it was that the general public is now extremely comfortable making purchases online.

Almost any transaction — food, travel, bills, entertainment — can now be handled electronically.

But before any of these transactions can be completed, you are required to check a small box at the bottom.

By checking this box you are consenting to the terms of an agreement drafted by the company’s legal department.

These agreements are called end user license agreements (“EULA”) or click wrap agreements. Although such agreements are prevalent in the online world, consumers seldom read them.

The average consumer doesn’t want to read page after page of legalese for a simple purchase. While this is understandable, you may be agreeing to things that you wouldn’t ordinarily agree to.

Before making your next purchase, here are some things to know about end user license agreements:

License vs. Contract

When you purchase a form of intellectual property online, it’s likely that you didn’t actually purchase the product. Instead you purchased a license to use the product for specific purposes.

This is important because it means that you don’t actually own the song, book, or movie that you purchased.

Under the doctrine of first sale, you are allowed to resale a movie, album, or book that you legally purchased. However, the doctrine of first sale does not apply to certain licenses.

So, if it was upheld to be a valid license, purchasing the same album online would be different than purchasing an album in a store (i.e., you can re-sell one, but not the other).

Some courts have rejected this distinction and held that consumers are entering into a standard contract rather than a license. But, like most issues in cyberspace, the courts are still divided.

What Are You Agreeing To?

Most people click “Yes” right away without much thought. In reality, you’re not going to spend your time and money disputing an issue concerning a 99¢ song you bought on iTunes.

However, it’s only when a major issue arises that you would notice exactly what you agreed to.

Many of the provisions in EULA’s contain standard, boilerplate language. Yet, there may be provisions that would cause you to pause if you read them.

When reading a EULA you should be on the lookout for the following issues:

1.) Free Speech:

The First Amendment grants us many rights, including the right to complain! Though it might surprise many people, you can in fact waive your constitutional rights through the form of a contract. Thus, some agreements may require you to refrain from publicly criticizing the company and the product.

2.) Fair use rights:

Reverse engineering, which is the taking of a known product and working backwards to see how it was created for the purposes of making it operable with other programs, is considered a fair use and protected under federal law. Yet, many software agreements contain a provision to prevent such activity.

3.) Right to bring a class action lawsuit:

Some agreements may contain a provision that prevents you from bringing a class action lawsuit, which would prevent a class of similarly aggrieved parties from joining you in a lawsuit.

4.) Privacy rights:

Many agreements contain a provision in which you grant the company permission to use the information you provide to them.

With the growth social networking sites and online advertising, more and more EULA’s are seeking to use your personal information for tracking purposes and/or to sell to third parties.

5.) Arbitration:

Many of these agreements contain a clause in which you agree to arbitration in a pre-selected state. So even though you are in California and the company operates in California, you may be required to travel to Florida for the arbitration proceedings.

However, just because the agreement contains such provisions doesn’t mean that a court will necessarily enforce them (see the next section).

Contracts of Adhesion

Courts have held that many of these end user license agreements are contracts of adhesion, which occurs when there is no ability to negotiate and there is a substantial power imbalance between the parties.

This doesn’t mean that such agreements are unenforceable. In fact contracts of adhesion are essential in our economy since a company like Apple isn’t going to negotiate with every customer who wants to purchase a song on iTunes.

A court will generally uphold the terms of such an agreement unless they find the terms unconscionable. Unconscionability occurs when an agreement is so one-sided that applying the terms would be onerous, burdensome, and oppressive to the weaker party.

If a court finds an agreement to be unconscionable, they will void portions of the agreement or, in some cases, the entire agreement. Of course, what is considered unconscionable may differ from state to state, and possibly even from judge to judge.

What You Should Do

As our commercial world becomes more digitized, it’s going to be almost impossible to avoid end user license agreements. Ultimately many of the issues stated in this article will have to be decided by the courts and Congress.

But, for the meantime, if you have a dispute with a company regarding their end user license agreement, you should first review the terms of the agreement to see if they are unconscionable and, if you determine that the agreement is unconscionable, weigh the costs and effectiveness of litigation.

Dave Owens is an attorney based in the San Francisco Bay Area. He can be reached at dao1282@gmail.com.

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John Corcoran has worked in Hollywood, written speeches for President Bill Clinton and lost his job when Arnold Schwarzenegger became the Governator. Even though he's lived in California most of his life, he is the world's worst surfer, although he does speak Valley Girl fluently. His day job is working with small business owners and entrepreneurs as a lawyer and business advisor.